Tuesday, March 30, 2010

Al Gore, No Score: "How a big bet on oil went bust" (GS)

We've had a few posts on Kleiner, Perkins' investment in Terralliance, links below.From Fortune:

In the summer of 2008, Erlend Olson thought he had finally hit the jackpot.

A bit player in semiconductors for years, the former NASA engineer had made an improbable metamorphosis into a burgeoning oil-exploration kingpin. His company, Terralliance Technologies, a secretive startup in Newport Beach, Calif., had developed an algorithm for telling petroleum engineers where to drill.

Never mind that Olson was an electrical engineer with no background in oil. He had convinced some of the world's most sophisticated investors, including Goldman Sachs (GS, Fortune 500) and Kleiner Perkins, that his unconventional approach was legit. Kleiner would go on to bet a whopping $93 million on Terralliance, a sum that may be the storied firm's largest venture investment ever.

Terralliance hadn't found much oil, but its founder and CEO was so adept at locating cash reserves that he believed he was about to close a deal that would seal his company's future -- and his fortune.

He had come to New York that August to negotiate a financing with Temasek, the sovereign wealth fund of Singapore, which Olson had been romancing for months. The price of oil had recently soared to $145 a barrel, and Temasek planned to invest $1.1 billion, valuing Terralliance at more than $4 billion.

A hulking figure with a glassy-eyed intensity, Olson had assured his investors that an infusion of this magnitude could lead quickly to a public offering worth as much as $60 billion. That would make Olson, as he wistfully recalled later, a "three-comma guy."

Olson wasn't alone in counting commas. Kleiner Perkins thought it was on the threshold of its first mega-win since Google's (GOOG, Fortune 500) IPO in 2004. Goldman Sachs, which had been betting shrewdly on plummeting housing prices, envisioned another killing. Passport Capital, a young San Francisco hedge fund, anticipated burnishing its reputation for energy investments. John Fredriksen, a Norwegian supertanker mogul who had lent Terralliance $50 million only months earlier, stood to score a quick hit.

All told, the investors had sunk nearly half-a-billion dollars into Terralliance, an astounding sum given the audacity of the company's aspirations -- and the paucity of its accomplishments.

Why experienced investors pumped so much capital into such a risky venture is just one mystery in the tale of Terralliance, a saga that has not been comprehensively told despite the high profiles of the players involved.

Kleiner Perkins, a firm that loudly promotes its most promising investments, for years didn't list Terralliance on its website and declined multiple requests to comment for this article. Despite interviews with many of the key people involved, it's also not clear what exactly Terralliance's technology purported to do, or how well its investors understood it....MORE